The Reagan administration and the World Bank are engaged in a bitter dispute over $1 billion in loans that the bank plans to extend to Brazil despite U.S. objections.
The bank's executive board yesterday overrode U.S. dissent to approve a $500 million loan to improve the operation of Brazil's hydroelectric industry and for energy conservation. The U.S. position was that the project would adversely affect the environment.
The bank also intends to act Monday on another $500 million loan to make agricultural production in Brazil more efficient, which the United States argues could generate new international food surplus problems.
The arguments over the loans to Brazil come just a few days before former congressman Barber Conable is scheduled to succeed A. W. (Tom) Clausen as World Bank president for a five-year term.
Reagan administration officials asked that a vote on the agricultural loan be delayed but were rebuffed at the top executive level of the bank. In fact, the bank decided to put the issue before its executive board on Monday instead of Tuesday, as originally scheduled.
The United States has 20.9 percent of the weighted votes at the bank and therefore cannot block the loans without support from other governments.
"We are damned unhappy that the bank is not only not acceding to our request that the agricultural loan to Brazil be delayed, they're speeding it up in order to get it out of the door before Clausen leaves, so they can count it in their totals. And we think that is extremely shortsighted," a U.S. official said.
The administration contends that the agricultural loan would create problems in Congress "at the very time we are trying to go to the Hill and get money for IDA," the official said. IDA is the acronym for the bank's soft-loan affiliate, the International Development Association, which makes loans to nations that need easy terms.
Presumably, administration officials fear that the loan to Brazil will create more competition for American farmers, who might retaliate by lobbying against appropriations for IDA or other bank programs.
"We're not asking that the loan not be made, we're asking the bank to be a little more sensitive," the official said. He said it is in the bank's long-term interest to try to accommodate such U.S. requests.
Bank officials said they are shocked by the administration's opposition to the agriculture loan because it appears to contradict the U.S. call for a new emphasis on such sectoral loans, which are designed to make basic changes in particular parts of the economy of the borrowing nation.
"This is precisely the kind of loan they've been egging us on to make," said a bank official, who asked that his name be withheld. "The loan is so good, and so private sector-oriented that it will made production more efficient in just the way the United States has been suggesting."
Officials at the bank said the Brazilian government's acceptance of a private-sector approach in agriculture represented a major policy breakthrough.
Bank officials say that the agricultural loan matter was advanced to Monday only to provide more time for discussion, since the Tuesday session will be devoted mostly to the bank's own administrative budget, likely to contain some long, contentious agenda items.
The loan, which has been under discussion for the past year and a half, is to finance a Rural Credit and Marketing Reform Project. The $500 million would be disbursed in two parts, with the first installment used to finance food imports needed after a drought and to support a new rural credit policy based on floating interest rates.
The result of the new credit policy, according to bank experts, will be to remove large subsidies to most farmers, who would then operate under a free-market system. The only remaining subsidies would be for the very poorest farmers in the northeast part of Brazil.
"The U.S. dilemma is that the bank can make this work in Brazil," a bank official said. "But because the administration can't explain it on the Hill, it's trying to exact a penalty."
Sen. Robert Kasten (R-Wis.) and Rep. David Obey (D-Wis.) had written Treasury Secretary James A. Baker III urging that the U.S. executive director vote against the electric power loan on environmental grounds. At yesterday's board meeting, the U.S. representative raised that objection. He also argued that electric power would not be produced at competitive price levels, and that costs would be subsidized.